You’ve probably heard of lazy equity. This refers to the equity in a property not being put to work. So, it just sits there. The recommendation is often to refinance out the equity and use it as a deposit to buy another property – putting that equity to work for you.
Lazy cashflow is a term we coined to describe the difference between the rent a property is currently producing and the maximum rent it could possibly achieve in today’s market.
Ways to access the lazy equity
Increase the rent at the end of the fixed term
Some investors have left their rents low for long periods of time so it hasn't been uncommon in the past but today more than every there's a lot of untapped income as some rental markets have been increasing by 20%+ each year. A quality property manager will send evidence with their notice of the rent increase so the tenant can see examples of the market value for that property instead of just being slapped with an unjustified hike and deciding to move out or worse, staying but with a strong dislike and holding a grudge against you as the owner.
Renovation
There are quite a few simple cosmetic upgrades you can make to an older property that pay very high cash on cash returns. You can sometimes do them yourself or lean on trades to get them done quickly and professionally. An upgraded property also means there is likely to be less maintenance over time, so it reduces those ongoing cost which boosts cashflow in the future as you are retaining more of the collected rent. A bonus is the equity generated from that cash investment. The general rule of thumb for reno's done by yourself is $3 back for every $1 invested or $2 for $1 if you're hiring trades. This means it doesn't suck funds out of what would be your next deposit - it increases the amount you have available to buy the next one.
Development - adding extra dwellings
This one is only possible for those with big blocks and a plan that suits the local council but buying larger blocks has been sound advice for a long time and there are a lot of investors sitting on blocks capable of housing a granny flat or something similar producing extra income. They cost a lot more and don't add as much equity dollar for dollar as the reno's but do provide a great cash on cash return. Ideal for someone who has some cash available but isn't too keen to jump in and buy given the uncertainty in the market at the moment.
The best part about all of these is that increased cashflow means increased serviceability which is the limiting factor for most investors looking to grow a sizeable portfolio.